Corporate Performance – Q4 FY23

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Aggregate Analysis
 Overall Analysis-Quarterly

In Q4 FY23, net sales continued to record double-digit growth at 10% (y-o-y), however, revenue growth
continued to slow for the third consecutive quarter. On a sequential basis, net sales improved with a growth of
4% (q-o-q) after having recorded flat growth in the previous two quarters.

Easing price pressures supported the profitability of corporates with operating profit recording an increase on an
annual as well as sequential basis by 5.7% and 14.9%, respectively.

The total expenditure of corporates continued to record double-digit growth increasing by 10.8% (y-o-y) in Q4
FY23. However, the pace of increase has witnessed sustained moderation since Q2 FY23. Benefitting from the
lower global commodity prices, the growth in costs of services and raw materials moderated to 6.3% (y-o-y),
marking the softest pace of increase in the last nine quarters.

While the pace of rise in input prices slowed, employee costs continued to spiral upwards rising by 16.8% (y-o-
y). Financing costs which had been consistently rising over the past six quarters were sharply higher by 23.3% in
Q4 FY23. Thus, while the pace of increase in raw material prices softened, financing and employee costs
continued to restrict the upside in profitability.
In terms of the financial ratios ……

Overall Corporate Performance Operating Profit Margin & Interest Coverage Ratio

the moderation in commodity prices boded well for the operating profit margin of the corporates which improved to a four-quarter high of 16.4% in Q4 FY23. On the financing front, monetary
tightening by the RBI throughout FY23 translated into higher borrowing costs for the corporates. As a result, interest expenses of the corporates were higher by 23.3% compared to a year ago
period. However, the increase in operating profit supported the improvement in the interest coverage ratio to 6.1 in Q4 FY23. Despite the improvement in the financial ratios, both measures
remained lower when compared to Q4 FY22.
Sectoral Analysis
• We have looked closely at 21 select sectors (details in Annexure I) to gauge their financial performance in the
final quarter of FY23. For our sample set, these sectors accounted for 85% share of the total turnover in Q4
FY23.
• Double-digit growth in net sales was witnessed in sectors such as aviation, hospitality, automobiles, retailing,
IT, power, realty and cement, among others.
• Strong growth in sectors such as aviation and hospitality can be attributed to the post-pandemic rebound in
travel-related services. Sectors such as iron & steel, non-ferrous metals, and crude oil saw muted sales as they
felt the pinch of lower global commodity prices, while the textile sector was hit by slowing external demand.
• While the IT sector logged a revenue growth of 16.2% (y-o-y), growth was flat when compared to the previous
quarter. Deferment of discretionary projects and delays in decision-making on account of the global economic
and financial market uncertainty could have weighed on the sequential momentum of the IT sector. Lower
demand in select verticals (retail, technology, BFSI) and markets (US and Europe) is believed to have weighed
on the IT sector’s performance. The textile sector recorded a contraction in net sales for the second
consecutive quarter at 7.7% (y-o-y) in Q4 FY23 as against a contraction of 11.7% in the previous quarter.
• The weak performance of the textiles segment can be attributed to the sluggishness in global demand.
• Sectors such as iron & steel, media & entertainment, non-ferrous metals, power, realty and textile witnessed a
yo-y contraction in their operating profit. For some of these sectors like iron & steel, non-ferrous metal, and
textile the contraction in operating profit was in line with their muted sales performance. Hospitality,
automobiles, pharmaceuticals, capital goods, logistics, FMCG, crude oil and IT recorded double-digit growth in
operating profits. Some of these sectors gained on the back of easing input prices, normalization of supply-
chain issues, and timely pricing actions.
Performance of Select Sectors in Q4 FY23
Growth in Select Sectors (Y-o-Y %)
Corporate Performance – FY23
• Annually, net sales increased by 22.2% on the back of improvements in demand and recovery in economic
activity. Despite the strong growth in net sales, operating profits rose by just 2.2% as an escalation in cost
pressures squeezed into the profitability of corporates.
• Total expenditure increased by 26% in FY23 due to an increase in both raw material and employee costs. As a
result, the operating profit margin dipped to 14.5% in FY23, the lowest level seen in recent years.
• On the financing front, RBI hiked the policy repo rate by a cumulative of 250 basis points (bps) throughout the
fiscal year resulting in spiraling borrowing costs for the corporates.
• Thus, interest costs rose sharply by 17.9% in FY23 after having declined in the previous two years. Subdued
growth in operating profits and a notable increase in financing costs translated into a decline in the interest
coverage ratio to 5.5 in FY23 from 6.3 in the previous year.
Overall Analysis - Annual
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